What happens to a student loan if you drop out?

Taking a break from college? Then pay attention to student loans, as lenders will be paying attention to borrowers.

Every wide-eyed college student hits campus with the goal of graduation, complete with a great academic and lifestyle collegiate experience. However, paying for college is a barrier many students run into — and leads many to leave school early.

Approximately 30% of first-year collegians drop out after their first year of school, according to College Atlas. Additionally, 56% of students who start out at college will drop out within the following six years. Reasons vary for dropping out of college, but financial issues are at the top of the list. Just over 50% of collegians who do drop out do so because of financing issues, with the skyrocketing cost of college a big contributor, according to LendEDU.

“Borrowers shouldn’t feel alone if they are stressed about the prospect of dropping out of school,” said Rob Bertman, senior student loan advisor at Student Loan Planner, an online college financing platform. “We’ve had countless emails from students who have doubted their decisions and are curious about their path forward if they decide to drop out of college.”

Here's everything else you need to know about your student loans if you drop out of school.

What happens to my student loan if I drop out?

The main question that accompanies dropping out of school: What do I do about student loan debt? When calling it quits, pay close attention to student loans — as you're still expected to pay them back, though the timing may differ between private and federal student loans.

“When you drop out, you’ll have to start paying back your federal student loans after your grace period ends, which is usually about six months.”

If you're hoping to lower your loan payments and pay off student loans sooner, you may want to consider refinancing. Credible can walk you through the process and find repayment plans in one location. You can compare multiple loan lenders and see what rates you qualify for.


However, you're going to want to move quickly when it comes to paying down student loan debt. Experts strongly advise addressing remaining student loan issues immediately after leaving.

“After your time of student loan repayment grace, don't forget those loans,” said Eliza Nimmich, co-founder of Tutor the People, an online academic tutoring company. “If you just have guaranteed government loans, interest has been accruing since you first took out the loan.”

How to pay off student loans fast

The best path to student loan repayment is to find out where the loan stands, how much is owed, and strategizing how best to repay the loan as quickly as possible.

Take these steps to pay off student loans if you drop out:

  • Where does the loan stand?
  • Start paying as much as possible, and as quickly as possible
  • Consider refinancing
  • Put your loans on autopay
  • Talk to an expert before you pull the plug

1. Where does the loan stand? Start by finding out as much as possible about any student loans, especially if payments can’t be made yet. “Be sure to find out the student loan servicer,” Nimmich said. “Then, find out just how much is owed when payments come due and what specific loan interest rate.”

2. Start paying as much as possible, and as quickly as possible. “After leaving school, start setting money aside every week to make timely payments,” said David Adefeso, the founder of The Pacific Group and Sootchy, a startup focusing on helping families invest for college by simplifying 529 plans. “Your interest is accruing, and you want to limit the compounding cost of the interest as much as possible.”

3. Consider refinancing. If, after dropping out and financial circumstances have changed, consider refinancing the student loan with a lower interest rate or possibly moving to an income-based repayment plan that bases payments on borrower income.

“Consult with the student loan services provider for the details – either one might be a good fit financially,” Adefeso said.

When refinancing, leverage an online loan selection tool like Credible to get prequalified student loan refinancing rates without impacting a student loan borrower’s credit score.


4. Put your loans on autopay. Student loan payers can save some money by setting up loan autopay with their bank and have the loan payment deducted automatically. “This usually decreases the loan interest rate by a quarter of a percentage point, and that can really add up, savings-wise,” Bertman said.

5. Talk to an expert before you pull the plug. If money is a problem, college students can get help with financing if they talk directly to their school.

“If a student is having trouble paying for college, the first stop should be the college's financial aid office,” said Jay S. Fleischman, an attorney at Shaev & Fleischman P.C. and founder of moneywiselaw.com, a financial platform that helps college students with student loan issues. “They have resources available to help bridge the financial gap so a student can continue with their college education.”


Keep things positive

Financial experts also recommend that ex-college students stay upbeat during an admittedly tough period.

“Remember, dropping out of college and still having debt is not the end of the world,” Adefeso noted. “So many people work hard, learn skills online, and find good jobs that allow them to actually pay down their debt.”

“In fact, it's possible that the individual emerges from this situation in a better position than if he or she had accumulated more debt by finishing college,” he said.

If you're looking to lock a low student loan refinance rate, then utilize multi-lender marketplace Credible's free online tools. Credible can help you compare private lenders at once to determine if now is the right time to refinance, based on your loan type, loan amount, and more.